Credit Cards

As we talk about credit this year I thought we might take a month to discuss credit cards and credit card rewards programs.  Perhaps this discussion is no better started than to ask, “What’s in my own wallet?”  The answer?  Three credit cards and two debit cards.

First, the debit cards- one is a debit/credit card that is used for business purchasing purposes and to make deposits in my business checking account.  The second is for our personal checking account, and is used predominantly for those rare occasions I need to access cash at ATMs.

Second, the credit cards- I am a big fan of cash back credit cards- so I carry the American Express Blue Cash Preferred card- which gives me 6% cash back on groceries (up to $6000/year), 3% cash back on department stores, 3% cash back on gas and 1% on everything else.  I use it exclusively at grocery stores and gas stations.  I pair that with a Citi Double Cash Mastercard (2% cash back on everything!) and use that card for everything else. The AmEx card does carry a $75 annual fee and while I typically avoid any card with an annual fee, after doing the math, I found it was worth it.

Consider:
$6000 (spent each year on groceries) x 0.06= $360.00
+$2400 (about $200/month spent on gas) x 0.03= $72.00
$432.00 – $75.00 (annual fee) = $357.00 cash back
(and I didn’t include any department store purchases)

*If I received 2% cash back on that same $8400 of purchases and paid no annual fee (with the Citi Double Cash card) I’d still only have $168.00

It should be noted I don’t even look at what interest rates would be on the cards because I never carry a balance.  The third credit card is a Visa that gives 1% cash back on everything and is a bit of a relic- it’s the first credit card I owned and thus has a 10+ year credit history (thus the reason I’ve kept it, my other credit cards have much shorter reporting histories).  I don’t charge more than a $100/month on it.

Many people like the airlines rewards cards– I am a bit skeptical of these cards and believe they should only be used by the most frequent of travelers.  Most carry an annual fee and many have blackout dates/seating.  To find out whether your airline card is really worth it, you’ll need to do some math; add up what your reward was, subtract the annual fee (if there is one), and then price out what you would have paid on the flight(s) you “purchased” with the rewards.  Compare that with something simple- say my 2% cash back card with no annual fee.  Ask yourself if you had 2% cash back on all your purchases for the year, would that be more or less than what you would have spent on the airline tickets you received?

Note too that if you already have a balance on your credit cards than you’ll want to look for a card that has a 0% interest rate on balance transfers for at least 12-18 months.  Pay your balance off over this time period and then go for a card that has great rewards.

While some avoid credit cards, they are undoubtedly an important tool in building your credit history which in turn increases your credit score.  A higher credit score will help you get lower interest rates on any number of things.  Not to mention by mindfully choosing your credit cards, you can get hundreds (if not thousands) of dollars in cash back each year.

The Prior Month

The S&P 500 fell 1.8% in March as February’s torrid rise gave way to a much needed rest and consolidation.  The first half of the month market participants were preoccupied with whether or not the Federal Reserve would use the word “patient” to describe their approach to raising interest rates.  Really, they were- the entire market held its breath to see if one word would be used.  Conversation and debate went on for days surrounding this question.  Turns out they left the word out of their post-meeting statement.  The day after the statement was released nobody cared anymore.

The March employment report showed a gain of 126,000 jobs- which sounds good on the surface, but was far below the 240,000+ number most economists expected.  The unemployment rate held steady at 5.5% and mortgage rates continued to ply the waters under 4% as they closed the month slightly lower at 3.75%.

The Great DebateAfter hearing the word “patient” was removed from the Federal Reserve’s March meeting statement, market participants returned to “the other great debate.”  

This Month

Historically, April is a good month for stocks.  In fact, since 2006, the Dow Jones Industrial Average has been up every single April and with an average gain of 3.1%. We’ll see if that holds true again as corporate America will be reporting their earnings for the first quarter of 2015 starting next week.  Once again, expectations are low so it shouldn’t take much to satisfy.  But if you’re unsure how this makes you feel, check out this video Chrome client and fellow Cookie Monster lover A.Z. sent in to help you think things through.

Cookie MonsterYes, corporate bond issuance was strong again in March.  Total YTD is $496 billion- already more than all of 2014.

Credit Tip of the Month

The credit score you see is not necessarily the one your lender is looking at.  It turns out the credit agencies come up with multiple different scores that take varying factors into account.  Some types of lenders are more interested in your mortgage history, credit card history, student loan payment history, etc. than others.  As a result, the credit agencies have developed different scoring systems that are each used by different types of lenders (mortgage, auto loan, etc.).

M.O. Wins First Annual CAM NCAA Bracket

Congratulations to Chrome client M.O. on his victorious 2015 NCAA March Madness bracket.  A Duke victory sealed the deal and won him a $100 gift card to Root Down Denver.  Way to go M.O.!!!  We’ll be doing this again next year so be ready!

NCAA Championship 2015

IRA Contribution Deadline

Tax day is Wednesday, April 15.  Remember you can still make 2014 IRA contributions up until that day!

Fun Fact

The Incas measured time by how long it took a potato to cook.

Have a great April,

Steve Zakelj, CFP®

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